“For Russia, turning to Asia has become essential for its freedom of maneuver” (Jacques Sapir)

La Tribune – The European Union (EU) proposed on Tuesday to introduce new sanctions against Russia, in particular an embargo on imports of Russian coal – 4 billion exchanged per year, 45% of imports from Europe – , in response to the discovery of a mass grave in Boutcha. What does this economic sanction represent for Moscow?

Jacques Sapir – The coal measures will have a marginal impact on the Russian economy compared to the value of trade. However, this can cause problems for some mines. However, extraction could most certainly find new outlets, particularly in China or India.

The EU also says it is considering stopping purchases of Russian oil, while the United States and the United Kingdom have already decreed an embargo. India and China, in fact, have increased their supplies from Moscow in recent months. Is this situation tenable for Russia?

Obviously yes. The way the West enforces sanctions on Russian oil is not working properly. India and China are taking over exports. India has reached an agreement that corresponds to its interests: today New Delhi pays between 75 and 80 dollars per Russian barrel – a reduction of around 20 dollars per barrel – while the price of crude oil from Saudi Arabia, country to which India historically supplies, is around 100 dollars. Admittedly, Russia sells at a lower price, but it maintains volumes. The International Energy Agency (IEA) estimated, at the beginning of March, at 30% the fall in Russian exports following the sanctions. In reality, we will be more around 20% and perhaps even less.

Are the Indian or Chinese outlets for selling Russian oil – and possibly coal tomorrow – a matter of short-term interest – thanks to attractive prices – or are we witnessing a longer-term shift in the balances of globalization ?

Each has its own strategic interests and otherwise maintains its positions. India, for example, wants to ensure control in the regional area of ​​the Indian Ocean. It will thus develop privileged relations with the countries of the west coast of Africa and South Africa. But in doing so, India synergizes with what China and Russia are doing. Beyond hydrocarbons, the Indian military industry relies more and more on Russian contracts. It is developing a hypersonic missile based on certain technologies given to it by Russia. More generally, a group of G20 countries has somehow decided to move forward together to promote their interests against Western countries. It should also be remembered that India decided in 2019 to move from observer status to full member status in the Shanghai Cooperation Organization, to which Russia and China belong.

Is this Russian swing towards Asia only linked to the war in Ukraine?

No, this Russian vision is not new. You already find this idea in the 2007 text that Vladimir Putin gave at the Munich conference. Russia’s energy strategy for 2030, then 2040, was enacted in 2010. And each version insisted a little more on the turn towards Asia, in order to reduce the dependence of Russian exports on Europe. Vladimir Putin has always had the idea of ​​reducing his dependence on Western countries and the United States, but mainly on European countries.

In this context, the annexation of Crimea by Russia in 2014 and the first Western sanctions that followed materialized this shift. Contacts were quickly established with China, which led to Beijing partially financing the gas pipeline linking the two countries. A new gas pipeline financed 50% by China will be commissioned in 2023. There are also discussions underway for a gas pipeline project that would cross Afghanistan to supply India. The 2014 conflict also made Russian elites aware of the first Western sanctions.

It is clear that Vladimir Putin saw in this politico-strategic shift an element of national independence and sovereignty of Russia. Turning to Asia has become essential from the point of view of freedom of action, freedom of maneuver for Moscow.

As such, the Europeans seem resistant to the idea of ​​imposing an embargo on Russian gas, on which Europe depended 65% before the war and in particular because of Germany which imports 40% of its needs via Moscow . A windfall that allows him to finance his war in Ukraine. Could Putin have in mind that Berlin’s energy dependence represented an Achilles’ heel for Europe?

It is obvious. We cannot substitute LNG for Russian gas because we do not have the means to transform it into gas. There are currently 20 processing plants across the whole of the European Union. If you add the English factories, that makes 22. However, these factories are working at almost 100% of their capacity. It would take 4 times more processing capacity to do without Russian gas. You also have to think about transport: the construction of LNG carriers is 90% carried out by Chinese and Korean shipyards. Between the construction of factories and ships, it is clear that in the short and even in the medium term, we do not have the replacement capacities. The risk of seeing Russian gas cut off is not only linked to heating in European homes, but above all to our needs to run our industries.

How do you explain that Germany placed itself in such an energy dependence with regard to Russia?

The German economic and political elites do not think long term at all. Steeped in neoliberalism, they make short-term calculations. We must also emphasize the role of political arbitration – or rather opportunism – on the part of Chancellor Merkel. Shutting down nuclear power plants was madness after Fukushima. The Germans have proved incapable of planning at least certain sectors of their economy. A change in a country’s energy mix can take ten or fifteen years!

In response to Western sanctions, Russia wants to impose payment in rubles for gas contracts for European deliveries. What is the Kremlin aiming for with this measure?

First of all, it should be remembered that since the start of the war, Russian exporters have had to sell 80% of their foreign currency earnings to the Russian Central Bank. This measure is reminiscent of that taken by Evgeny Primakov, then Prime Minister (from September 1998 to May 1999, Ed), which was later suppressed by his successors. His return is a victory for the Kremlin “hawks”.

Thus, today, Western companies can continue to pay with the currencies they used until now but on condition that they pay these sums into a Russian bank, on what is called a “K account”. This will make the conversion into rubles at Moscow rate conditions. So 80% of the sum will be changed to rubles, 20% can remain with the currency chosen by the buyer. The purpose of this maneuver is twofold for the Kremlin. On the one hand, and this is the main objective, it is a matter of ensuring that these funds, by being housed in Russian establishments, will not be blocked by Westerners. It is then a question of supporting the rouble, but this purpose is secondary. In this regard, it should be remembered that the exchange rate against the dollar recovered before the announcement of this measure.

By controlling this financing circuit and imposing an 80% payment in rubles, isn’t this measure also aimed at tightening the Kremlin’s hold on the oligarchs?

This is another reason for this measure. It aims to limit the room for maneuver of the oligarchs. But it does not necessarily target the bosses of Russian oil companies, who are very close to the Kremlin, like Igor Setchin, the boss of Rosneft. It seems unlikely to me that he is turning away from Putin, even if he likes to show his power.

It is rather a question of targeting “fluctuating” Russian bosses, operating for example in industries such as aluminum. It is a measure of anticipation. Oleg Deripaska, the boss of the world’s second largest aluminum group, is no longer in court at the Kremlin. If Russia decides to extend the payment of contracts in rubles to these industries – which is not the case today but it should not be ruled out – this profile of oligarchs will be hampered by payment in rubles and their diminished powers.

These sanctions will also hit Russian households hard. The inflation rate reached 9.2% in February over one year. Are the Russians not likely at some point to find the cost of war too high?

This is a problem that worries the Russian government. In my opinion, this inflation will reach at least 12% to 15% by the end of the year. But this is not specific to Russia, it follows global inflation which had started to accelerate from the late spring and summer of 2021. To protect against this, the government is preparing a series of measures : increase in pensions, civil servants’ salaries, probable introduction of a minimum wage… To finance these measures, its financial leeway is not affected by the sanctions, because these are essentially internal operations to Russia.

Nevertheless, he It is interesting to look at the distributive effects of this phenomenon. Inflation on manufactured goods, especially those purchased by wealthier upper middle classes, will rise considerably. However, the aid currently discussed in the Duma, the Russian parliament, rather targets the working classes. This should narrow the purchasing power gap between the two classes. If we put aside the 1/1000 of the richest, in other words the oligarchs, it is quite possible that the share of the income of the population which is below the median increases in the GDP.

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